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Smash ES Plan | December 14, 2022
An interesting session was expected, we got a crazy one. Triple distribution day down after opening on a true gap up ~114 handles above prior day's high. Lower distribution of interest short-term.
Recap & Plan
An absolutely crazy session of trading today. If you managed to keep your emotions intact, you most likely had a better session than the majority of traders out there. How could we use the levels published in prior plan to keep us away from trouble today?
Smashlevel 4019 was tested in the ON session and it held. We discussed the poor structure left from yesterday’s session and that we might get some fills overnight and lack of fills would tell us that stronger sellers are higher, meaning caution being a seller as the path of least resistance is to the upside. Note the ON profile to the right, which demonstrates the selling shutting off. The first upside target was 4046, which was achieved during the Europe session prior to the CPI numbers, meaning a good time and location to book profits. The market reacted positively on the CPI data and we basically rallied for ~120 handles due to complete lack of liquidity. A reminder of why one should flatten before the numbers (ONH: 4180!).
This crazy upward move obviously took out the last intraday upside target 4084, but also the Weekly Extreme High 4105, where we also had the 4 week balance high. For new followers, when the last intraday upside target is achieved, I usually play defense, meaning I’m cautious chasing to not get caught initiating trades at poor location. It’s a very simple but powerful concept. I might miss some good moves when we rally, but more often than not I’m keeping myself out of trouble. The Weekly Extreme High has the same concept, but on a weekly time-frame, meaning if taken out I’m playing defense for the rest of the week. For me to be even remotely interested in longs after taking out the last intraday upside target, we need to establish acceptance above it, meaning we need to spend time and volume above. The same applies for the Weekly Extreme High.
Note from the Weekly Oulook, published 12/10:
“Note the confluence with 4105 and the 4 week balance high. As always, resistance is where you book profits if long and it’s not an optimal location to start initiating new longs.”
If we take today’s session as an example, we opened above 4105 after a crazy move, as discussed. I’m zero interested in longs at this point. The first thing I will observe is how we behave around 4105, if it gets tested. If you review the ON session, you can see that 4105 acted as support on the first pullback on the CPI move. 4105 was immediately taken out during the initial balance (first hour of RTH), meaning I’m not seeing what I wanted to see, established acceptance above it. Then we come down and test 4084, note the distribution we build around it. That was the first battle of today’s RTH session, confirming the importance of that level. There was a couple scalp opportunities, but the B-period single prints remained unfilled. As long as 4084 held, we couldn’t count out buyers despite being in a downtrend since RTH open.
Eventually 4084 got taken out, meaning another day where the concept of not chasing saved me from trouble. If I’m not interested in longs, it doesn’t mean that I actively look for shorts, this is a very important note to keep in mind. Not trading is also a position, sometimes the best one. I can write about the different nuances from today’s session all day, but I wanted to specifically point out the importance of the context around the intraday and weekly levels. It's a concept of not getting ahead of yourself, which is very easy to do in a volatile and emotional trading environment.
We end up with a triple distribution with two sets of single prints and the distribution to observe short-term is the lower one. Note the MA200 and previous month’s value area high at the lower end of it. We opened on a true gap up today, ~114 handles above prior day’s high and we were 1 tick shy of filling it, crazy session as mentioned. We did look above the 4 week balance and fail today, meaning the high volume area around 3960 will potentially act as a magnet if sellers manage to break and hold below today’s lower distribution, something to keep in mind. Buyers in control as long as daily one time framing up stays intact. FOMC tomorrow, meaning continued volatility is expected.
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